After the Decision: The Political Economy of Presumptive Tax Reforms in Uganda

Presumptive tax is a tax often levied on businesses in the informal sector of an economy. It is based on an indirect way of assessing tax liability, i.e. on a presumption that the business in question has an income above a certain amount. Presumptive tax is considered useful in countries with large informal sectors and is therefore widely applied in such countries. However, its enforcement often meets a series of challenges, such as unclarity about the ways the tax scales are calculated, uncertainty about the rules, or lack of enforcement capacity. Therefore, presumptive tax reforms are often frequent. In Uganda, the presumptive tax rules have been reformed several times, most recently in 2015, and again in 2020. However, presumptive tax collections remain negligible, and according to some, below 1 per cent of the Uganda Revenue Authority’s collections. The purpose of this paper is to assess the intentions of the presumptive tax reforms and to identify the main political economy drivers of their implementation. Drawing on a systematic review of available policy documents, reports and reviews of the reforms, key informant interviews of officials in the revenue authority, the Ministry of Finance, involved interest groups, and donor representatives; and a survey in metropolitan Kampala and the neighboring districts of Mpigi and Wakiso of a number of groups of small business owners liable to pay presumptive tax, we identify the main factors affecting the enforcement of the new presumptive tax regime.